We never thought we’d see the day when a Chinese telecom company, which has in the past been accused of industrial espionage by U.S. companies, would sue a U.S. equipment maker. Well, that’s exactly what has happened.
Huawei filed suit Monday to stop Motorola Solutions (s msi) from selling its wireless network business to Nokia Siemens Networks (s nok) (s si), because the sale would transfer trade secrets and competitive intelligence from the Chinese equipment firm to its competitor. (By the way, Motorola had accused Huawei of industrial espionage in July 2010.) The lawsuit, filed in U.S. District Court in Illinois, seeks to stop Motorola employees and information associated with Motorola’s UMTS and GSM equipment businesses from being transferred to Nokia Siemens Networks under the $1.2-billion deal. From the lawsuit:
Such a transfer, if consummated in its originally contemplated form, will result in the massive disclosure of Huawei’s confidential information to NSN, with irreparable harm to Huawei. A large number of Motorola employees, many carrying direct knowledge of Huawei’s confidential information, would become employees of NSN. Huawei hereby sues to obtain preliminary injunctive relief to prevent such harm pending an arbitration under the agreements, including an order that Motorola and NSN modify their transaction to prevent the transfer to NSN of the portion of Motorola’s wireless business related to GSM and UMTS networks until an arbitral tribunal is able to adjudicate the matter.
Huawei and Motorola had worked together for the last decade with Huawei providing gear for GSM-based 3G networks and Motorola providing services and acting as a reseller of the Huawei gear. Motorola Solutions and NSN have not responded to requests for comment yet.
The irony here is that Huawei, which has been considered a cut-rate Chinese telecommunications provider, is using an intellectual property offensive to stop this deal. As such, this lawsuit could be a wake up call to the rest of the world. Huawei owns more than 49,000 patents worldwide, and while it’s unclear if there are patents involved in this lawsuit (it looks primarily like a trade secret issue), Huawei is sending out a strong signal that it plans to defend its IP. It’s also yet another example of Huawei moving up-market, becoming more than a provider of cheap Chinese gear.
Huawei is not merely a private telecommunications company; it has direct and cultural ties to China’s government, and this suit could be an initial test of the IP firepower China has been gathering in the last few years. According to data from the World Intellectual Property Organization Magazine:
Since its establishment in 1985, China’s patent system has matured considerably, breaking new records and significantly improving the country’s innovative capacity. In the first decade of the 21st century, patent applications in China grew by an average annual rate of 22.3 percent. From January to October 2010 alone, the number of applications for invention patents totaled 295,275, up 25 percent over the same period in 2009. Of these, almost three quarters of the total (72.5 percent – 214,079 applications) were filed by domestic applicants.
In the suit filed Monday, Huawei drove the point home, saying it spends 10 percent of its revenue on R&D and noting that half its 100,000 employees are engaged in some type of research and development. But will Huawei use its “rich IP and patent portfolio” as a means to stop consolidation in the equipment world as it’s trying to do here, or could it start asserting its patents and IP among competitors such as Alcatel-Lucent (s alu), Cisco (s scso), NSN and Ericsson (s eric)? As the consolidation among gear makers hits a wall, will the next phase in Huawei’s domination of the industry rely on patent warfare?
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